by Pam Martens and Russ Martens, Wall St On Parade:
Jeffrey Epstein, the accused sex trafficker of underage school girls, presided over a $6.7 billion offshore company as its Chairman from November 9, 2001 to at least March 19, 2007, a period during which he is accused of committing his sex trafficking crimes against minors. The company is Liquid Funding Ltd. and it had two offshore connections: it was incorporated in Bermuda on October 19, 2000 by the Appleby law firm, known for setting up offshore companies in secrecy jurisdictions like the Isle of Man, Guernsey, Cayman Islands, and Jersey. Liquid Funding’s investment manager was Bear Stearns Bank Plc in Dublin, Ireland – a non-U.S. regulated institution, which was later merged into JPMorgan Bank Dublin.
A Securities and Exchange Commission filing by Bear Stearns, prior to its epic collapse in 2008, indicated that Bear Stearns owned 40 percent of Liquid Funding Ltd.’s equity but the owners of the other 60 percent remain a mystery. The ratings firm, Fitch, reported in 2006 that the company had $6.7 billion in outstanding liabilities. What those liabilities consisted of and who paid them off when Bear Stearns collapsed remains largely unknown, although we did track down $364 million of Liquid Funding’s commercial paper stuffed into U.S. money market funds. Two of JPMorgan’s money market funds held a total of $100 million; two Dreyfus money markets held at least $139 million; and a Frank Russell money market fund held $125 million.
Since our last report, we have uncovered new details from a report issued in 2004 by the Moody’s ratings agency. JPMorgan Chase, Bank of America and Natexis Banque Populaire extended the company a $250 million liquidity facility and Deloitte was its auditor. JPMorgan Chase is also listed as its “Security Trustee.” The large corporate law firm, Sidley Austin, was its legal counsel.
We reached out to JPMorgan, Sidley Austin and Deloitte seeking information on how Epstein came to chair the company and additional details. Thus far, we have not received a response from any of the three. That the French bank, Natexis Banque Populaire, was part of the liquidity facility with two U.S. banks suggests that Liquid Funding may have had business dealings in France. Epstein has an apartment in Paris as well as mansions in Manhattan, Palm Beach, New Mexico and the U.S. Virgin Islands.
The involvement of JPMorgan Chase is particularly interesting in a company where Bear Stearns is a 40 percent owner and Jeffrey Epstein is Chairman. The New York Times reported that a key executive of JPMorgan Chase, James (Jes) Staley, visited Epstein when he was serving out his sentence of 13 months in Palm Beach, Florida a decade ago. Epstein was able to escape Federal prosecution then despite compelling evidence that he had sexually abused dozens of underage girls for years.
JPMorgan’s involvement is further interesting because the Federal Reserve Bank of New York provided a $28.8 billion loan to take that amount of toxic assets off of Bear Stearns balance sheet and put them in a concoction called Maiden Lane LLC in order to sweeten the pot for JPMorgan Chase to take over Bear Stearns when it blew itself up with bad investments in 2008.
Bear Stearns also ended up getting an $853 billion lifeline from the Federal Reserve in low-cost revolving loans that the Fed fought to keep secret along with the rest of its $29 trillion bailout of Wall Street and foreign banks during the financial crash.
The longstanding mandate of the Federal Reserve is to be a lender of last resort to federally-insured, taxpayer-backstopped commercial banks in times of panic. Bear Stearns was an investment bank with no federally-insured commercial bank in the U.S. And yet, for some reason, it received an open spigot from the Fed.
Jeffrey Epstein currently resides in an 8’x8’ jail cell in the Metropolitan Correctional Center in Lower Manhattan. While Julie K. Brown of the Miami Herald has provided Pulitzer-worthy reporting on what Epstein and his enablers did to these young school girls, business media is delving into how this college drop-out who lied his way into both a teaching job at the prestigious Dalton School and at the investment bank, Bear Stearns, made his reported $500 million in wealth. (According to the Wall Street Journal, Epstein falsely claimed that he had graduated from Stanford University to get into Dalton and Bear. In fact, he never attended Stanford and dropped out of NYU.)
What is known so far about Epstein’s wealth is that Epstein was collecting large sums of money from billionaire Leslie Wexner, the founder, Chairman and CEO of L Brands, parent of retail outlets Victoria’s Secret, Bath and Body Works, and Pink. Epstein was a multi-tasker for Wexner, overseeing the management of his money, his charities, his tax reduction strategies, even his pre-nuptial agreement. Wexner was so confident in his trust of Epstein that he gave him an almost unlimited power of attorney – a decision that seems wildly irresponsible since Epstein was neither a family member nor an attorney. (The Board of L Brands said last week that they have hired an outside law firm to conduct an internal review of Epstein’s involvement with the company. But, peculiarly, they will not name the law firm and our inquiry to their media relations department on that subject went unanswered.)
We also know that Epstein had a number of cozy Wall Street relationships because he was able to get his hands on highly sought after and hard to come by hot initial public offerings (IPOs), where a tidy profit can be made in a one-day flip of the stock when it pops on its first day of trading. We reported on Epstein’s flipping of IPOs on July 15 and Barron’s added more to our story on Friday, finding that Morgan Stanley was the lead underwriter in the deals that Epstein’s charity, Gratitude America, got in on and the sole underwriter in 12 of the deals.
While mainstream media has done an unusually good job at filling in some of the puzzle pieces, many mysteries remain about Epstein, including his private jet travels to foreign countries, his fake Austrian passport found by prosecutors in the safe of his Manhattan mansion listing a fake name and a residence in Saudi Arabia, and his little black book containing the names of powerful politicians, world leaders and Wall Street power brokers – some of whom have turned up on the flight logs of his private jets.
The only reason that Liquid Funding’s name came to light was that someone leaked a trove of documents from the law firm, Appleby, in 2017 and the International Consortium of Investigative Journalists compiled a searchable database of the documents.
The structure of Liquid Funding Ltd. was unusual. Fitch reported on October 24, 2006 that it could issue liabilities up to $20 billion, made up of commercial paper, guaranteed investment contracts, medium term notes, and repurchase agreements but that it would only have $100 million in equity. Bear Stearns reported in a regulatory filing that “The Company’s maximum exposure to loss as a result of its investment in this entity is approximately $5.0 million.”